We examine the drivers behind the sharp increase in corn and palm oil prices over the past year, and project what 2022 may hold for category managers.

Just like resins, the focus of our first session in the Commodity in Focus series, corn and palm oil are subject to a huge range of drivers and variables that influence their prices, demand, and supply availability. 

Both commodities are major components of many consumer food products, and each have a broad range of other uses too. Corn makes up a large part of most animal feeds, and is an important ingredient for creating ethanol. And palm oil is a vital blending ingredient that’s used to create biodiesel, a valuable alternative to pure crude oil.

Like many other commodities, both have been subject to the effects of the pandemic, which triggered major changes in consumer behaviour, workforce availability, overall production as well as changes in weather patterns.

In the second session of our series, we took a closer look at why corn and palm oil prices have risen so sharply in the past two years, and revealed what category and commodity managers can expect to see in 2022.

Read on to discover some of the key insights we shared in the session.

Corn prices remain high while demand continues to rise

From August 2020, corn prices climbed steadily for eight months, rising 120% in the US and 83% in Brazil, and moving way beyond the long-term trading range. As the chart shows below, we saw a downturn in May and June of 2021, due to the onset of the harvest season in many corn-growing countries – but from September 2021, prices began rising again.


There are a wide range of factors that caused this price hike, and most can be explained when looking at what’s driven the supply and demand of the commodity:

The supply perspective: The Brazilian market had a major decline, with a 50% reduction in export in 2020 – and as the second-largest corn producer in the global market, this undoubtedly had a big impact. 

The US also struggled to meet its projected export values. This is most likely due to the dryer weather conditions that affected the US Midwest ‘corn belt’, and specifically Iowa, which accounts for 19% of all the United States’ corn production. Combined with a 16% year-on-year decrease in Ukraine, La Niña weather conditions affecting Latin America, and typhoons limiting production in China, corn stocks fell to a 6-year low.

The demand perspective: After China successfully contained its case of African swine flu among livestock, its farmers were able to increase the number of pigs they could cultivate, inevitably creating a rise in demand for feed – and as a result, corn. 

The rise in demand for feed was followed by an increase in ethanol consumption in 2021. Ethanol makes up 41% of total corn consumption in the US, so its greater usage levels had a big impact on global corn stocks.

The policy perspective: To help limit the crisis, multiple regions put policies in place to limit the export and import of corn supplies. Many regions reduced the ratio of corn used in feed production, substituting the commodity with less expensive grains like wheat and rice.

Meanwhile, China cracked down on speculators to limit the country’s import levels, and Argentina – the world’s third-largest corn exporter – restricted its export levels to contain its domestic corn prices.  

Corn prices are expected to see a dip in Q2 2022

As harvest season draws to a close, global stocks still remain a concern. We expect factors including rising input costs, acreage decisions (especially in the US, which are generally taken during Q1), high freight charges and limited shipping container availability for corn exports to keep the prices elevated over the rest of 2021 and Q1 2022.

Looking ahead to next year, production levels are expected to increase by about 7.7% globally, due to increases across major corn-producing regions like the US, China, and Brazil. And with this higher level of production, stock levels are also expected to rise.

However, corn consumption isn’t expected to slow down any time soon. In fact, ethanol production in the US is likely to increase, and most major corn-consuming countries are continuing to increase their consumption – resulting in a predicted global increase of 2.4% in corn demand.

Due to these factors, it’s unlikely corn will fall below its 2020 price levels. But, as the chart below shows, we do expect to see a dip in corn prices in Q2 of 2022, following a rise in Q4 of 2021 and Q1 of 2022. 

Inevitably, these price fluctuations will be dependent on key risk factors that will affect corn supply and demand in 2022, including:

    • Rising agricultural input cost: Corn is one of the most fertiliser-intensive crops available, which means as fertiliser costs continue to rise, corn-producing countries may reduce the acreage they dedicate to corn.
    • Surging crude oil prices: As crude oil prices rise, demand for ethanol will begin to rise, due to its use in blending for fuels – meaning a greater demand for corn.
    • Uncertain weather developments: If there are any unexpected weather developments in 2022, like the La Niña conditions seen in 2020 and 2021, corn production could be severely affected, ultimately impacting stocks and prices.
    • Impact of US-China Phase 1 Trade deal: During 2021, Chinese corn imports surged around 289% Y-o-Y, majorly increasing its US corn imports. A heightened level of imports in 2022 will also provide a cushion to the price drop expected in 2022 on a yearly basis.

Palm oil faces a similar trajectory to corn

Like corn, palm oil has also seen a consistent rise in price over the past year. As you can see in the chart below, the price of palm oil has risen 130% since May 2020, reaching historic high levels at the end of 2021. Also, prices have continued to remain well above the previous market average, with only a brief downward fluctuation in June 2021.

The reasons for this continuous price increase become clearer as you look at the factors that have affected the supply of and demand for palm oil over the past year, as well as some major policy changes:

The supply perspective: One of the biggest drivers of palm oil’s limited supply was the Malaysian government’s COVID-19 restrictions, which prohibited the entry of foreign labour and limited the number of workers across the country’s major plantations. Paired with the fact that 10% of Malaysia’s workforce returned to their home countries during the pandemic, the region faced a major workforce shortage. 

Also, as La Niña weather conditions caused higher than average rainfall in countries like Indonesia, palm oil harvesting was hindered. Conversely, La Niña conditions caused dryness in the US and Latin America, limiting the production of palm oil substitute  – soya bean oil; while drought in Ukraine and Russia reduced substitute sunflower oil supply.

The demand perspective: Palm oil exports rose significantly as vegetable oil stocks remained low across India and China in 2020. 

Also, like corn, palm oil demand was greatly increased due to rising crude oil prices, as palm oil is used as a key blending ingredient to create biodiesel – a more cost-effective fuel alternative that produces fewer emissions.

The policy perspective: Another significant influence on the rise in demand for palm oil was Indonesia’s B30 biodiesel mandate, which set a new minimum blending ratio for the commodity in biodiesel – raising the percentage of palm oil from 20% to 30%.0

Also, Malaysia exempted its palm oil export tax in 2020 to incentivise producers to export more of the commodity. Similarly, India reduced the import duty for palm oil by around 10%, which quickly increased the country’s palm oil import levels. 

Palm oil prices will fall overall in 2022

We can still expect to see elevated palm oil prices throughout the end of Q4 2021 and Q1 2022, with prices remaining well above previous trading averages. However, as the graph shows, we expect to see a  fall in Q2-Q3 2022, but not below 2020 price levels.

This is due to the 5% projected global increase in palm oil production, along with a significant increase in the production of substitute vegetable oils as weather conditions continue to improve in countries like Russia and Ukraine. 

Also, Malaysia recently announced the re-entry of 32,000 foreign workers, which accounts for around 10% of the workforce employed by palm oil plantations, and means palm oil production in the country will likely increase.

Like corn, palm oil’s price fluctuations are dependent on key risk factors, including:

  • Labour shortages in Malaysia: If the Malaysian government mandates that foreign workers leave the country again, Malaysia’s palm oil plantations will face another workforce shortage which will majorly impact production levels. 
  • Lower than anticipated US soybean production: If soybean production falls in the US again due to drought, soybean oil will no longer be a readily available substitute, increasing demand for palm oil.
  • Increasing demand from India and China: Global consumption of palm oil is likely to increase by 2.9% on a yearly basis as India and China (with low domestic stock levels) will have a greater import demand for the commodity. 

Be ready for whatever tomorrow brings with The Smart Cube

You can’t ever completely predict the future. But with reliable category, commodity, and market intelligence from diverse sources, translated into clear actions delivered straight to your team, you can get quite close.

It’s easy to find out more about The Smart Cube’s Commodity Intelligence solution, and see how we can help you master the global corn and palm oil markets – or any other major commodity market – today.

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